When a loved one is in financial distress, many of us wouldn’t think twice about offering some quick cash to help out.
But before you do, there are some things you should probably consider to avoid conflict down the track.
The bank of mum and dad
Principal Lawyer and National Head of Wills & Estates, Andrew Simpson, says it’s a common rite of passage in many families that parents loan their children money for any number of purchases.
“Research shows that ‘the bank of mum and dad’ is one of Australia’s largest lenders when it comes to buying a home in particular,” says Andrew.
“Given the current pandemic-related economic crisis, we expect more young Australians will turn to their parents for financial assistance, including for living expenses like bills and rent.”
While this is entirely understandable, Andrew has seen this go wrong on too many occasions.
Keep a paper trail
Andrew recommends keeping a paper trail now to save yourself the hassle of having an uncomfortable conversation later.
“Whether you’re giving or receiving money from family, it’s a good idea to document the terms of the arrangement to try and avoid any problems down the track.”
Something as simple as an email outlining whether the money is a gift or a loan can help avoid family disagreements and reduce the likelihood of legal disputes arising.
If it’s a larger sum of money, you may wish to draw up a formal loan document.
Be clear about expectations
Do you want the money to be paid back? If so, what time frame do you think is reasonable? Andrew recommends being clear about any expectations before you hit transfer.
“Is it a gift or a loan? Disagreements over this point are the source of many disputes, especially from siblings and other family members.”
“I’ve seen many disputes over Wills where siblings believe another relative has already received a fair sum and therefore should get less of an estate when it’s being administered.”
Review your Will
Check if your Will needs to be updated to include the gift or loan so that there is no 'double dipping'.
Questions to consider include whether the money is an advance on a child's inheritance, and whether repayment of the loan is required as part of estate administration.
Andrew recommends also considering any future family arrangements here.
“Consider what happens if your adult child is in a relationship, and that relationship breaks down after you’ve transferred them some money. The money could end up in the general marital asset pool and you may need to go to court to get it back.”
The key takeaway
Andrew says that lending family money shouldn’t lead to difficulties.
“By checking off these few simple steps first, you can avoid any conflict later down the track.”
Preparing a Will or updating one is also worth considering sooner rather than later. To find out more on how to do this from the comfort of your own home, check out our MyLife Wills Online Service.